Global Investing

Revitalised West knocks Brazil, Russia off global growth Top-30

By Shadi Bushra

Yet another sign of the growth convergence between developed and emerging markets. Two  of the “BRIC’ countries have dropped out of the Top-30 in a growth index compiled by political risk consultancy Maplecroft, while several Western powerhouses have nudged their way onto the list.

Maplecroft’s 2014 Growth Opportunities Atlas showed that Brazil and Russia — the B and R of the BRIC bloc — had dropped 26 and 41 places, respectively – due to slow economic reforms and diversification.  The United States, Australia and Germany meanwhile broke into the top 30 on the  index, which evaluates 173 countries on their growth prospects over the next 20 years.

The study’s results are indicative of the broader pattern this year of an emerging markets slowdown after years of robust growth fuelled by cheap money from the West and a decade of booming trade. But the two other BRIC countries — India and China — have retained their top spots, albeit with lower absolute scores. And India overtook China for first place due to its “catch-up growth potential,”  Maplecroft’s report said.

The index also highlights a view that has been gaining increasing currency in recent times — that the term emerging markets is a actually a convenient catch-all phrase that masks the diversity within the group it supposedly describes. So although the report disparages Brazil and Russia’s failure to use a decade-long commodity boom to invest in long-term growth, it offers Indonesia (3rd), Turkey (13th) and Nigeria (18th) as possible alternatives.

Meanwhile the significant improvement in key Western economies, including France and Britain, appears to signal that Europe is ready to join the global recovery.

Mali risks in focus

The international focus is on  gold-producing country Mali after days of French air strikes on al-Qaeda-linked Islamist rebel strongholds in the north of the West African country. France expects Gulf Arab states will help an African campaign against the rebels,  and a meeting of donors for the Mali operation is due at the end of the month. West African defence chiefs are meeting today to approve plans to speed up the deployment of 3,300 regional troops.

Mali isn’t normally on the radar screens of international portfolio investors, with little external debt and no developed capital markets.

But it is Africa’s third biggest gold producer, with London-listed Randgold the biggest investor and other foreign firms such as Anglogold also having investments.

Corruption and business potential sometimes go together

By Alice Baghdjian

Uzbekistan, Bangladesh and Vietnam found themselves cheered and chided this week.

The Corruption Perceptions Index, compiled by Berlin-based watchdog Transparency International, measured the perceived levels of public sector corruption in 176 countries and all three found their way into the bottom half of the study.

Uzbekistan shared 170th place with Turkmenistan (a higher ranking denotes higher perceived corruption levels) . Vietnam was ranked 123th, tied with countries like Sierra Leone and Belarus, while Bangladesh was 144th.

Iran currency plunge an omen for change?

In recent days Iranians all over the country have been rushing to dealers to change their rials into hard currency. The result has been a spectacular plunge in the rial which has lost a third of its value against the dollar in the past week. Traders in Teheran estimate in fact that it has lost two-thirds of its value since June 2011 as U.S and European economic sanctions bite hard into the country’s oil exports. The government blames the rout on speculators.

According to Charles Robertson at Renaissance Capital,  the rial’s tumble to record lows  and inflation running around 25 percent may be an indicator that Iran is moving towards regime change.  Robertson reminds us of his report from back in March where he pointed out that autocratic countries with a falling per capita income are more likely to move towards democracy. (Click here for what we wrote on this topic at the time)

He says today:

The renewed collapse of the currency recently suggests sanctions are working towards that end.

Shadow over Shekel

Israel’s financial markets had a torrid time on Monday as swirling rumours of an imminent air strike on Iran caused investors to flee. The shekel lost 1.4 percent, the Tel Aviv stock exchange fell 1.5 percent and credit default swaps, reflecting the cost of insuring exposure to a credit, surged almost 10 percent.

There has been a modest recovery today as the rumour mills wind down. But analysts reckon more weakness lies ahead for the shekel which is not far off three-year lows.  Political risks aside, the central bank has been cutting interest rates and is widely expected to take interest rates, currently at 2.25 percent, down to 1.75 percent by year-end. Societe Generale analysts are among the many recommending short shekel positions against the dollar. They say:

Expect the dovish stance of the Bank of Israel to remain well entrenched for now.